President Donald Trump’s weekend order to give millions of workers a break on payroll taxes caught many people by surprise, and created a range of reactions, criticism and questions.
Each paycheck, employees see 7.65 percent of their wages go to Washington to help fund Social Security (6.2 percent) and Medicare (1.45 percent). Trump ordered Treasury Secretary Steve Mnuchin to defer those payments for at least four months, from September through the end of the year.
That means someone making the median weekly wage of about $1,000 would see an extra $75 in their paycheck. Trump’s order applies to people making up to $2,000 per week, so people who earn $104,000 a year or higher wouldn’t get the tax break.
After those basics, things get more complicated.
As written, Trump’s order provides temporary relief. At some point, the missed payments would need to be made up, but the memo says the administration will look for a way to let people keep the money.
Mnuchin told Fox News Sunday that the money would be made up for with dollars from the general fund. The administration can’t promise that on its own. Congress, which controls federal spending, would need to pass a bill to make it happen.
Employers already are getting a tax holiday. They match the employee contribution, and under the last COVID-19 relief package, the CARES Act, their payments are on hold until the end of the year. They have two years to pay it back. They need to send Washington half by the end of 2021 and the other half by the end of 2022.
Social Security and Medicare amount to over a third of all federal spending, and the payroll tax delivers nearly 90 percent of the money to keep them running. As more people retire, there’s less money to keep them solvent. Less money coming into the system only exacerbates the problem.
The executive order has already fueled chatter on social media about what it means for the future of Social Security.
One post on Facebook asked, “How does a payroll tax cut help millions who are unemployed and have no payroll?”
Trump addressed the unemployed in a separate executive action. Trump said he wanted the unemployed to get an extra $400 each week through Dec. 6.
There are substantial hurdles in pulling that off, but that was his approach to helping the unemployed. The payroll tax holiday was designed to give workers more money, and hopefully boost the economy as they spent more.
Because the executive action circumvents Congress, which controls federal spending, it will likely face legal challenges. That would slow any disbursement of funds. Then there’s the complicated matter of implementing a 25 percent share with states who say they can’t pull it off with their already stressed budgets.
New York Governor Andrew Cuomo, a Democrat, said the measure was based on shaky legal ground and can’t replace legislative actions.
“States can’t pay 25 percent of unemployment costs,” Cuomo wrote on Twitter. “It’s simply impossible.”
The memorandum requires states to enter a financial agreement with the federal government and pick up 25 percent of the tab (or $100) for each person, a provision that was criticized by governors as many states continue to struggle financially because of the virus.
The federal portion of the money would come from the Department of Homeland Security’s Disaster Relief Fund, which is typically used for response and recovery efforts from major disasters and emergencies. The extra benefit would last until the fund is down to $25 billion, or Dec. 6, 2020, whichever comes first.
A day after signing the measure, Trump suggested it may be possible for the federal government to pay the full cost, if governors make a request.
“We have a system where we can do 100 percent or we can do 75 percent, they pay 25, and it will depend on the state,” Trump told reporters at his New Jersey golf resort. “And they will make an application. We will look at it, and we’ll make a decision.”
But the source of the funds is only one issue.
The previous $600 unemployment supplement built on the nation's unemployment benefits program as part of the $2 trillion CARES Act that lawmakers passed in March.
The new round of unemployment aid that Trump envisions does not come through that pipeline. So states would have to figure out a new way to distribute these dollars.
Michele Evermore, a senior policy analyst at the National Employment Law Project, an advocacy group for workers, told PolitiFact it will be difficult for states to get a new administrative system up and running.
“It seems like an empty promise,” Evermore said. “States can’t use their unemployment insurance infrastructure, so they are going to have to figure out how to set up a parallel program to their already strained system, while still processing a record number of claims. I don’t see how states can do this.”
The administration and Republicans haven’t wanted to extend the $600 supplement, saying that the amount exceeds what some workers were making while employed and disincentivizes people to go back to work. Republicans initially suggested a $200 supplement for two months and then a payment that would replace about 70 percent of the unemployed worker’s prior income.
Democrats want to keep the additional $600 supplement going. They say reducing the amount will hurt workers who need the money to pay their bills.
White House press secretary Kayleigh McEnany told reporters that she couldn’t provide an exact date for when Americans might see the extra benefits. A lot will depend on states and an application process, she said.
— Samantha Putterman contributed to this report